Shares down for troubled GlaxoSmithKline after sickly sales outlook

Shares of GlaxoSmithKline were the blue-chip FTSE 100’s biggest faller as the embattled drug-maker warned profits would fall short of expectations amid competition from cheaper copycats in the US.

The group said total sales fell 3 per cent to £11.2billion during the first half of 2014, with problems from so-called generics exacerbated by an ongoing corruption scandal in China.

Operating profit slumped 7 per cent to £2.9billion for the period.

Chief executive Sir Andrew Witty – a former government advisor who was paid £6.5million last year – warned it was ‘unlikely’ the company would deliver sales growth for the full year. It had previously forecast annual growth of 4-8 per cent.

Alistair Campbell, an analyst at German investment bank Berenberg, said the numbers were ‘a significant disappointment and have triggered a downgrade to growth expectations for the year’.

GSK (down 73.5p to 1481.5p has been dogged by allegations that its workers bribed Chinese doctors and other healthcare officials to prescribe its medicines.

In May four local executives were charged with bribery while the British former boss of the group’s China operations, Mark Reilly, is also facing prosecution and cannot leave the country. US authorities are also investigating the pharmaceuticals giant for violations of anti-bribery laws.

Sales in China including established products collapsed by 25 per cent to £129million, GSK revealed.Witty said he remained ‘very concerned’ about allegations about GSK’s China business, which he said ran ‘contrary to the values of the company’.

‘We have zero tolerance for this kind of behaviour,’ he said. ‘The company is very clear on what it expects from its 100,000 staff and the vast majority operate ethically. [But] in a company of our size there is the small potential for people to step out of procedure.’

Analysts believe GSK directors are trying to distance themselves from the scandal and potential prosecution by demonstrating adequate anti-corruption measures were in place, thereby pinning the blame on a few rogue employees.

Like most mature drug companies, GSK is facing the ‘patent cliff’ – where best-selling drugs lose legal protection, opening them up to cheaper competition – and is pumping money into research and development. Witty said there had been ‘very significant sales being lost to generics’, including increased competition for its asthma treatment Advair.

Outside the US, performance was more positive, with sales up 11 per cent and driven by the sale of vaccines. Sales in Europe were flat in a tough trading environment.

The company is paying a quarterly dividend of 19p a share, up from 18p last year.